At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.

But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we track the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.

Tesla gets "Capped"
"Merry Christmas," you say? Not for Tesla Motors (Nasdaq: TSLA) shareholders, it isn't. For the second (trading) day in a row, shares of the electric car pioneer are plunging. The reason: California's Capstone Investments, a boutique investment banker focusing on small and microcap stocks, downgraded the shares to "sell" last week. Tesla promptly tumbled 8% Thursday, followed by what's shaping up to be a double-digit percentage decline this morning.

In all, the company has lost more than $600 million worth of market cap over the past two days. And what were the weighty words that wreaked such havoc upon Tesla? Here's a sampling:

  • "We believe the premium cost and range anxiety will limit adoption of EVs."
  • "Tesla has sold [only about] 1,400 vehicles since 2008."
  • "[L]ack of recharging infrastructure, range limitations versus conventional vehicles and lack of a brand name" will all hamstring Tesla's business, making it difficult for the company to achieve analysts' expected 20% annual growth target.
  • "[H]ybrid EVs and plug-in hybrid EVs" -- as opposed to pure-electric cars such as Tesla builds -- "will continue to take the lion's share of green conscious automobile customers given their lower price points, better driving ranges and availability from brand name OEMS such as General Motors [(NYSE: GM)] ... Toyota [(NYSE: TM)]" and Honda [(NYSE: HMC)].

Capstone further sees a risk that Tesla's new "Model S" electric sedan -- the car that's to replace the "Roadster" that made the aforementioned 1,400 sales -- will not arrive on-market on time. Any such "delay of game" will leave Tesla defenseless in the battle for market share, open to attack by the rivals named above, and Ford (NYSE: F), Nissan, and Berkshire Hathaway-backed BYD of China, as well, all of which are rushing products to market.

"We've analyzed their attack, sir, and there is a danger"
Now, I hesitate to endorse Capstone's sell argument unqualifiedly, in light of the analyst's lack of a public record (Capstone does not report its ratings through, which aggregates ratings from most reputable analysts and provides the data that fuels our CAPS ratings). But that caveat aside, Capstone's arguments seem sound.

With only 1,400-odd sales under its belt (and many of those already subject to recall), Tesla's still a bit player in the global car market. To gain mass market appeal, Tesla needs to offer a car selling for less than the $100,000-plus-sized Roadster. Yet even if the Model S arrives on time, its estimated $50,000 price tag is likely to scare off a lot of consumers, who in test driving the electric car concept are more likely to opt for entry-level prices -- $40,000 or thereabouts for GM's Volt, and less for Ford's Focus, Nissan's Leaf, and BYD's F3DM.

Meanwhile, by taking a sabbatical from the Roadster as it gears up Model S production, Tesla may have sacrificed its first-mover advantage. Already, when General Electric (NYSE: GE) announced its major move into electric car usage, it placed its first multithousand car order not with Tesla, but with GM.

Foolish final thought
All these risks notwithstanding, Tesla somehow commands a premium valuation of nearly 28 times sales -- a valuation fifty times the P/S ratio at Toyota, and even more remote from the prices on offer for Ford and GM stock.

Put it all together, and Capstone is forced to conclude "the stock is overvalued and the risks outweigh the positives." I agree ... but there's no law that says you have to agree. Just because Capstone and I both think Tesla's a dog of a stock, you may see its potential. If so, here's your chance to tell us why we're wrong. Click over to Motley Fool CAPS now, and sound off in defense of Tesla.

Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 636 out of more than 170,000 members. The Motley Fool has a disclosure policy.

Berkshire Hathaway and General Motors are Motley Fool Inside Value selections. Berkshire Hathaway and Ford Motor are Motley Fool Stock Advisor recommendations. The Fool owns shares of Berkshire Hathaway.

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